Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64466
Authors: 
Kiefer, David
Year of Publication: 
2008
Series/Report no.: 
Working Paper, University of Utah, Department of Economics 2008-03
Abstract: 
In the new Keynesian model of endogenous stabilization governments have objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. Because they react quickly to inflation shocks, governments can lean against the macroeconomic wind. We develop an econometric test of this characterization of the political-economic equilibrium using the Kalman filter. Applying this methodology to a variety of quadratic social welfare functions, we find that an inflation target functional form is consistent with US history. We also find it more likely that expectations of inflation are adaptive, rather than rational.
Subjects: 
endogenous stabilization
policy objectives
adaptive expectations
JEL: 
E61
E63
Document Type: 
Working Paper

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